Not your typical startup: How being a cooperative drives our business and product development

Our French startup Digicoop is a remote-first worker cooperative. We started the company in 2015, based on our shared values and passion for technology. The goal was simple: make good products that will have a positive impact on companies. The road to funding, not so simple.

Due to our unique business model, which focuses on building a sustainable company, we had to forego venture capital and convince lots of players to take a chance. The effort paid off. Here’s a look at why we chose to be a co-op, how we got the funding and how it drives our product development.

Table of Contents

Raison d’être

Unlike many startups, Digicoop wasn’t founded because of a particular product. Our story is a bit different. In 2015, a few friends and former colleagues came together to work on projects they were passionate about. Initially we didn’t know what those would be, but we quickly figured out the theme: collaborative work tools for teams. 

Making that our focus was no coincidence. We recognized that the workplace was changing: distributed teams were becoming more common, and with that more transparency and an increased cross-team collaboration necessary. We became frustrated with traditional work tools and processes, as they were no longer enough.

We saw an opportunity to develop products suitable for the digital future, but that wasn’t our only driver. Being passionate about technology and the impact it can have on the society, we set out to build tools that could make a positive difference. The idea was to empower employees, not only managers.

Our shared values and vision of the workplace were the reason we decided to go against the grain and structure Digicoop as a worker cooperative (called SCOP in France), giving each employee a real stake in the company.

SCOP: We’re all in this together

Digicoop logo

Image via Digicoop

Businesses don’t exist without people, and we strongly believe that when team members feel involved, the whole company benefits in the long term. In a worker co-op, everyone is the owner, everyone takes responsibility and makes decisions.

Unlike corporations, in a cooperative 51% of the capital must stay in the hands of employees. This directly impacts decision-making in that everyone gets one vote in business decisions, regardless of the size of their investment. Furthermore, any profit you make is redistributed annually among the team.

The problem we saw with traditional startups was that micro-percentage ownership didn’t equal true employee involvement. Many companies claim otherwise, but if you consider that 9 out of 10 startups won’t grow enough to pay out, the claim falls flat.

A co-op is based on the principle that employees are owners: they invest in the company and share profit every year. What this means for Digicoop is that we do not have a venture capital board to which we are accountable. We are only liable to each other and our customers. Our relationship with them is the main focus, because the longevity of our company depends on their trust.

Co-ops on the rise

Kantree versatility

Image via Digicoop

At a time when more and more people want to make sense of their work, we see cooperatives as tailor-made for the tech industry. Just like in open source, they are about mutual support, transparency and a strong member involvement.

Perhaps not surprisingly, the number of cooperatives around the world is growing. According to data from the International Co-operative Alliance, there are currently 3 million co-ops, with the digital industry being well-represented. In France, there are more than 2,800 registered SCOPs, plus various support networks such as Coop Tech.

A new approach to management

In a co-op, there is less need to set up work processes and control people (especially in a small team like ours). All you need is work orientation and coordination.

At Digicoop, each team member is involved in growing the company, each person is considered a collaborator on projects and has a “good” reason to do their job well.

In terms of day-to-day operations, it means that we all stay informed and keep the others informed on what is happening in the company. We all participate in operational meetings and we all vote (more on that below). Moreover, when a collaborator wants to introduce a new idea, he or she researches its feasibility and business implications, then presents the findings to the team for discussion.

We chose not to have “managers,” but “coordinators” — someone in charge of ensuring that what was decided is actually acted upon. This person does not have any decision power, but can act as a coach: collect concerns and problems, schedule meetings to discuss bottlenecks, etc. The coordinator is not a full-time role, it is a temporary assignment. You take on the projects that are close to your heart, the ones where you can have the most input. That way the whole team taps into your strengths that in turn benefit everybody.

This collaborative setup cultivates a sense of responsibility toward the company and colleagues. It works well because suddenly there is a feeling of gratitude. We each work for each other, not to please managers, it’s a circuit that is self-sustaining.

Sustainable growth

From the beginning, we have been focused on building a sustainable business and growing our revenue step-by-step to create long-term employment for our team. There is no pressure to grow at a neck-breaking speed, no pressure to sell.

In terms of numbers, we don’t need to bend over backward to please investors, which makes it possible to define a realistic long-term growth strategy.

We already cleared the ground in terms of borrowing and crowdfunding and have shown that it’s possible without aiming to be bought out. But this story gets a bit technical.

Co-op funding, a tricky business

Kantree timeline views

Image via Digicoop

We were one of the first worker co-ops in the digital sector to raise funds so early on and on such a scale in France. For this reason, it was quite a struggle in the beginning, and involved many players.

For the first two years, the company ran on the founders’ personal funds, and then on income from sales. We reached a point where, although still not quite profitable, we felt that we had validated the business model and had a good market fit.

Exit strategy? Not here

Before talking about our financing rounds, it is important to understand that given the nature of cooperatives in France (i.e. they are to be long-lasting companies providing long-term employment for workers), investments don’t work the traditional way.

In a SCOP the share value is constant, but shares can be issued at will. The capital of cooperatives is therefore variable (because the amount of shares can change), but not speculative. You cannot value the company higher than the sum of its shares and thus raise funds based on a new capitalization. This means that selling the company makes no sense, as you would only recover the amount you initially put in. As a result, all exit strategies usually used by startups are not applicable.

It’s worth noting though that this “constraint” is on purpose, as the goal is to be successful as a company and not as founders.

(Of course, there is an alternative way to finance cooperatives — on top of traditional bank loans — and we will come back to it later.)

Hitting roadblocks

As you may have guessed, while the few venture capital investors we talked to liked our business, they were completely freaked out by the cooperative aspect. They were not ready to try out a different business model.

We actually got selected for one of the most well-known French startup accelerator programs (NUMA, batch 8 in 2016), as they were willing to consider our way. However, things fell short after a few weeks and we left the program. Why? They thought the cooperative aspect of our company would hinder our success.

Round 1: Community help

We ended up turning to the existing French cooperative community, which helped us raise our “first round” for a total amount of €140,000. It is a combination of a small personal bank loan from each founder and a loan for the company from a bank and several public institutions.

It was a really complicated situation to navigate, as players from different worlds were meeting for the first time to review our application.

On one hand, we had people from the digital and startup world who could understand the product, the business model and risk factor. On the other hand, people from the French social economy sector were brought in to judge our cooperative aspect, but had a hard time with the business model and risk factor.

In the end, because we had already managed to secure a couple of large customers, we were able to convince every committee we had to go through. The process took about six months.

Round 2: Crowdfunding

The second round came one year later. This time we decided to use an investment instrument dedicated to cooperatives, called “Titre Participatif,” via a crowdfunding campaign on the French platform Wiseed (which supports cooperative investment).

A “Titre Participatif” is a type of investment contract. We don’t give shares away in this transaction, investors don’t get any power over the company. Payouts are defined in the contract as a percentage of the revenue, based on business goals. Investors receive an annual interest; after 7 years, the amount is fully reimbursed and there is an exit percentage. In our case, the ROI after 7 years for an investor is estimated at around 150%.

In the end, we managed to raise €210,000 from 220 people.

Vision of the future

Kantree reports

Image via Digicoop

The investments we secured have allowed us to hire new people and fund our sales and marketing efforts. We are now profitable, factoring in monthly repayments to investors, without giving away any control in the company.

And going forward? In addition to employees and partners investing in the company, we envision creating an invite-only open-source environment, where our clients can contribute to the development of the product and be investors in the company.

There are already some examples of this in action. One that comes to mind is that of Ark, an open-source blockchain organization incorporated in France as a cooperative society (SCIC). This status provides them the benefits of a nonprofit (provided that earnings are not redistributed to shareholders), and their management structure includes employees, founders and advisors. Everybody gets one vote.

We are glad that more cooperative-focused initiatives begin to emerge. In addition to support networks such as the aforementioned Coop Tech, there is now Coop Venture, an investment fund for startups created by the French co-op community.

Last but not least: Our products

Kantree dashboard

Image via Digicoop

After initial experiments, such as the collaborative note-taking tool Polynote and a Web client for XMPP called Kaiwa, we decided to focus on one flagship product.

Kantree is a truly flexible work management platform, which allows distributed teams to collaborate more efficiently and without extensive tech knowledge or IT assistance. Thanks to its visual, highly customizable interface, it gives team members full control of their projects and work processes.

The functionality of Kantree is a reflection of the values that Digicoop stands for: collective intelligence, transparency, autonomy, flexibility. We believe that with this freedom, teams feel more confident and deliver better results, which allows companies to fully benefit from their skills. A win-win situation for everyone involved.

Our reasoning is also aligned with the principles of Ethical Design. According to this growing movement in the tech world, the role of design teams is to create products and services that do no harm, but instead have a positive impact on the world.

It’s the cooperative aspect of our startup that allows us to create products with such considerations, i.e. not directly driven by increasing the value of the company.

Structuring our startup as a cooperative was a conscious and ambitious choice. The road hasn’t always been easy, but it’s one we’re glad to have taken and continue to take.